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The new £3bn Affordable Homes Guarantee Scheme: how it works and who can access it?
With more details of government’s Affordable Homes Guarantee Scheme coming to light in recent weeks, Dominic Brady looks at how the new programme will work and how housing associations can access it. Picture: Getty
What is the Affordable Homes Guarantee Scheme?
Twenty months and two chancellors ago, during the 2019 Spring Budget, the government announced it would create a new Affordable Homes Guarantee Scheme (AHGS). Philip Hammond, the man in charge of the country’s coffers at the time, wanted to revive the Affordable Homes Guarantees Programme (AHGP) which ran between 2013 and 2016.
The idea of the scheme is to offer registered providers access to loans underwritten by the government, which, because of the government’s backing, can achieve lower than normal borrowing rates. The money would then be used to support development of homes for social rent, affordable rent and shared ownership in England.
Overall, the government expects the scheme to deliver 17,000 new affordable homes across the country.
The value of the AHGS is £3bn for a three-year period. This £3bn figure is the limit at which the government
will underwrite all loans collectively for registered providers if they default on payments to lenders.
Previously through the AHGP, which was run by The Housing Finance Corporation, housing associations regularly borrowed at interest rates of below 2% compared with average borrowing costs of roughly 3.5% at the time.
The latest iteration of the government’s guarantee scheme will be run by Saltaire Housing, a subsidiary of ARA Venn, an investment manager in European real estate private debt.
When will it begin?
Scheme manager ARA Venn said it hopes to be able to take on formal applications to the scheme by the end of the year.
The organisation is already holding talks with housing associations to get feedback on what type of loans would be useful to the sector, including short, medium and long-term maturities.
It is expected that ARA Venn will be able to launch its first bonds via the scheme in quarter two of 2021, though this is subject to interest levels from registered providers. The group has said that once it has issued its first bond it will become easier to make more frequent transactions.
ARA Venn is contracted to the run the scheme for an initial period of three years, with the option of a two-year extension at the end of the term.
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What will the cost of borrowing be?
Rates at which housing associations can borrow from the AHGS will depend upon gilts – the government cost of borrowing – at the time of the transaction.
These rates have been relatively low throughout the 2020, allowing larger housing associations to price own-name bonds at increasingly attractive rates. A recent example is Clarion’s £300m sustainability bond, priced at 1.25% with a spread of 95 basis points (bps) over gilts. This issuance was an improvement on Clarion’s previous bond in January priced at 1.875% at 98bps.
Because loans through the AHGS are underwritten by the government, in theory borrowers on the scheme should enjoy even lower rates than those we have seen this year.
Richard Green, partner at ARA Venn, tells Inside Housing: “I think as a broad estimate, if we were issuing some 30-year bonds today, maybe those bonds would be around gilts + 40 to 50bps.”
He adds that ARA Venn extracts an asset management fee on top of that, but overall the cost is lower.
Who can access it?
The scheme is open to housing associations of all sizes and will cater for transactions of all sizes, according to ARA Venn.
Mr Green cites the example of the government’s Private Rented Sector Housing Guarantee Scheme, which is also run by ARA Venn, through which the organisation has provided loans between £15m to £200m.
How is it different from the last scheme?
The most notable difference between the latest version of the scheme and its predecessor relates to valuations.
While the AHGP allowed housing associations to borrow against assets which were valued via the existing use value for social housing (EUV-SH) method, the AHGS will enable registered providers to borrow against assets valued through market value subject to tenancy (MV-STT).
The difference between MV-STT and EUV-SH is that the former assesses properties based on their value when sold outside of the social housing sector, while EUV-SH provides a value assuming the property will be let in perpetuity as social housing. Valuations done via the MV-STT method are typically higher, reflecting the government’s confidence in the stability of the social housing sector.
It is thought this will allow housing associations to borrow more against their assets as values are typically higher via the MV-STT method.
With government having tweaked the valuation methods in the AHGS, valuers are predicting uptake on the scheme will be high.
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